Performance summary
Our performance in 2008
Capita delivered a strong performance in 2008. Organic growth was excellent with a wide range of new major contracts secured in the year and with businesses across the Group delivering robust results.
In the year ended 31 December 2008, turnover increased by 18% to £2,441m (2007: £2,073m). Underlying operating profit* rose by 18% to £320.9m (2007: £271.3m) and underlying profit before taxation* increased by 16% to £277.2m (2007: £238.4m). Underlying earnings per share* grew by 18% to 33.26p (2007: 28.10p).
Underlying operating cash flow** rose by 17% to
£392m (2007: £334m). We have increased our total
dividend for the year by 20% to 14.4p (2007: 12.0p).
We have returned £69m to shareholders through
purchasing our own shares. In total, including the
proposed final dividend, we will be returning £156m
(2007: £272m) to shareholders in respect of the 2008
financial year.
Building value for shareholders
In addition to the financial measures reported above we
focus on a number of other key financial measures:
operating margins, cash flow, capital expenditure,
return on capital employed, gearing and economic
profit. We also focus on maintaining a conservative but
efficient capital structure. Collectively they form an integral part of building value for our stakeholders on a
consistent basis over the long term.
Our marketplace
The market for business process outsourcing (BPO) in
the UK and Ireland continues to provide strong growth
opportunities. Industry analysts estimate the total UK
potential market at £94.2bn per annum, with only 6%
outsourced so far †.
In the current economic climate, we expect an
increasing number of organisations will review their
business models and explore where outsourcing could
lower costs and offer more service flexibility. With our
scale and expertise, we are well placed to help these
clients create more adaptable, lower cost operating
models while improving service quality. Furthermore,
our financial strength and stability is becoming a key
competitive advantage.
Generating profitable growth
We generate profitable growth by winning business
from new and existing clients in the UK and Ireland and
supplement this by acquiring businesses that broaden
our skill base and extend our market reach.
Organic growth
Our Major Sales Team pursues complex, long term
contracts which bring together a wide range of the
Group’s skills and generate high quality, recurring
revenues. Securing and renewing major contracts is
an important component of our growth.
Our sales performance in 2008 was excellent.
We secured and extended 17 major contracts with a
total value of £1.24bn (2007: 8 contracts totalling
£1.89bn) including with Abbey Life, Marsh UK, Principle
Insurance Holdings, Sefton Metropolitan Borough
Council, Sheffield City Council, the Health and Safety
Executive (Gas Safe Register ™ scheme) and the
Department of Health (NHS Choices). We maintained
our 1 in 2 win rate during the year.
2009 has started well. In the first 8 weeks of 2009, we
have been selected to deliver major contracts with an
aggregate value of £610m, including being the preferred
partner to administer 3.2m mature life and pensions
policies for AXA Sun Life in a contract anticipated to be
worth £500m over 15 years and contracts with
Breckland District Council, Charnwood Borough
Council, eircom and Threadneedle.
Bid pipeline: Alongside these contract wins, our bid
pipeline has been replenished and reflects the quality
of business opportunities across our markets. The bid
pipeline was £3.1bn at the end of February 2009 (Feb
2008: £2.5bn) and only includes bid situations in which
we are shortlisted as 1 of 4 or fewer competitors and
caps our largest bids at £500m.
Our most active markets remain life and pensions
and local government. Central government, a market
which has been less active in recent times, is also
starting to offer some interesting opportunities.
Contract renewals: We have only 1 material contract
(defined as having annual revenue in excess of 1% of
2008 turnover) due for renewal before the end of 2011.
Stimulating growth through acquisition
A key element of our growth is the acquisition of small
to medium sized companies which extend our presence
in existing market places or provide a foothold in a new
market. We have substantial experience of integrating
acquired businesses and achieving synergies with our
existing operations.
In 2008, we completed 12 acquisitions for a total
consideration of £147.4m, including ComputerLand UK,
Lancaster Insurance Services, ABS Network Solutions
Limited and IBS OPENSystems (IBS).Our acquisition
of IBS has been referred by the Office of Fair Trading
to the Competition Commission and we are fully
engaged with them in their review.
In the first 2 months of 2009 we spent a further
£13.6m on 2 acquisitions, a trust administration
business, FMS and a healthcare intelligence and quality
improvement services business, CHKS Limited.
Increasing scale and capabilities of
our offshore operation
Our offshore operation in India is developing
strongly both in scale and scope of services and
allows us to offer clients a flexible, efficient, blended
onshore/offshore delivery model. Our offshore
operation has played a significant role in helping
to secure major new business, including contracts
with Marsh UK, Abbey Life and AXA Sun Life. By the
end of 2009, we expect to have over 4,500 staff in
India.
Economic sensitivities
In the current volatile economic climate, areas of our
business that may be more sensitive to economic
weakness are unit and investment trust administration
where fees are related to the value of funds under
administration, some of our recruitment businesses
(particularly our search and selection business) and
elements of our property consultancy business.
However, much of our activity in these areas is
underpinned by long term contracts and involves
the supply of essential public services. The areas
potentially affected represent less than 10% of
our Group revenues and this risk has been factored
into our 2009 business planning process.
Valuing our people
Capita celebrates 25 years of operation this year and
the Board would like to take this opportunity to thank
all the talented employees across our history who
have played a key role in Capita’s consistent growth.
Whether our people join us through direct recruitment,
contracts or acquisitions, their hard work, commitment
and enthusiasm play a vital role in helping us to meet
client expectations and in supporting our growth.
In 1984, the Company had 2 employees. Today, we
have over 36,000 whose combined contribution fuels
the continued success of the Group.
We are continuing to invest in senior management to
support the growth we anticipate going forward. In
2008, we recruited 62 senior managers taking our
senior management team to 433.
Future prospects
Despite the economic climate, we believe Capita
is well placed to continue its growth. Current
conditions present a healthy flow of opportunities
for us. Our pipeline of sales prospects, strong forward
visibility of revenues from our long term contracts
and consistent operational performance position us
well for further strong progress.
Prospects for Capita in 2009 are encouraging. Our
success in the first few weeks of 2009, a high level of
sales activity and a strong demand for outsourcing in
the current economic conditions underpin our outlook
for continued growth in 2009 and thereafter.
- * Underlying profit excludes intangible amortisation of £18.6m (2007: £9.7m) and the non-cash impact of mark to market movement on callable swaps of £32m
- **Underlying cash flow excludes an exceptional additional pension contribution to the
Group Final Salary Pension Scheme of £10m
- † Source: Ovum 2008.